I'm confused; I could have posted that article. I agree, pension funds are underfunded. All the areas you put bold are true.

Perhaps I wasn't clear. I thought you were implying that you wouldn't get your full pension/retirement plan because of these reasons?

Unlike private plans, who if they are severely unfunded, simply go broke, public plans just cut desperately needed services or raise taxes; they must do whatever it takes to providethe money to pay for exorbitant public retirement plans that begin benefits after 20 years of service. You have a gold plated contract. Sleep well.

Future negotiations may affect future retirees, but that which has been promised to date must be paid.

So don't worry GM, YOUR pension plan is fully guaranteed by the taxpayer. Whatever it takes, cutting teachers and other jobs, cutting basic services, raising taxes, you name it, it will be done to insure your outrageous retirement plan.

I'm not blaming or faulting you; you just reap the rewards of your Union fighting for you and nearly every generous City giving freely giving away the taxpayer's money. It's time to settle up.

Wow; you are right; I thought all police/fire had a union. Maybe it's time you form a union too? Police collectively going on strike/sick day leave can be very persuasive. Actually, police are one of the most powerful unions in America.

I don't know what state you live in, but....

In general, the state can gut retirement for future benefits, i.e. new hires can have a totally different plan (they should; I never understood this absurd 20 year and out deal or the excess of a rich defined benefit plan that nearly no one in private business has anymore), henceforth, states may be able (conflicting rulings) to adjust future retirement benefits for current employees i.e. their benefit henceforth can be accrued at a different lower rate (new contract). BUT money promised as of today, be you a retiree (they are fully protected) or a current employee, whether the plan is fully funded or not (not your problem); that money is yours. The state can huff and puff, cry poverty, but if you play hardball, you have a gold plated contract backed up by the state; wrong or right, the state needs to cut services, raises taxes, do whatever it takes to pay that contractual obligation.

illegal? Yes I know; sorry I wasn't clear; working slower, doing basically nothing, gaining support from other unions, are all tactics used; "job actions" are the key. What's wrong with the "blue flu"? Albeit rare, police wildcat strikes have happened; what are they going to do, fire you all like the traffic controllers? Legal to fire you, I agree, however..... a few days of no police on the beat might change the public's mind.

I'm of the opinion (we don't agree) that police and fire as well as most public employees are overpaid; primarily I am referring to benefits. That said, a deal is a deal; a contract is a contract;like in private business or anywhere else, if you make a deal, keep it. And when it's up for renewal, change it henceforward. That's fair. But you don't go back and change a contract.

In what state do you work? I mean I'm in LA (yes I admit we have numerous problems; but depending upon your perspective, the LAPD's union is VERY powerful and successful).

What applies to "big city" departments, like LAPD or NYPD doesn't apply across the board. Keep in mind most police agencies across the country have on average 20 officers or less and no collective barganing/job protections like you see in the big departments.

As you have pointed out, I will often give opinions on areas beyond my expertise. I don't really know anyone on a small police force; it seemsthey are either part of a larger force or sheriffs (LA County) or affiliated in some way with a larger police force.

I am however quite knowledgeable about Pensions having been, quite some years ago, an Employee Benefit Consultant to large corporations and unions for many years, including I might point out, the LAPD Health and Welfare Plan.

Contract law is contract law. While I abhor many aspects of public employees, the waste and abuse is absolutely terrible, a contract is a contract.

It sounds like your police force is not in agreement. Without knowing the facts, I can't give an opinion, but collectively they are strong; individually they are weak.

PRINCETON, NJ -- The U.S. unemployment rate, as measured by Gallup without seasonal adjustment, is 9.0% in mid-February, up from 8.6% for January. The mid-month reading normally reflects what the U.S. government reports for the entire month, and is up from 8.3% in mid-January.

Pelosi 2008: Bush to Blame for High Gas Prices; Pelosi 2012: Wall Street to Blame for High Gas Prices

Posted by Jammie on Feb 24, 2012 at 8:54 am

Obviously the Democrats are worried their golden boy will be taking heat for skyrocketing gas prices so this week they’ve gone on the offensive. Their diversionary tactics will probably work since the media will dutifully carry their water. But it’s interesting to see the double talk from idiots like Nancy Pelosi. Back in 2008, it was the evil Bush to blame for soaring prices at the pump.

“This is a scam of the greatest magnitude,” says Speaker Pelosi.

Rising gas prices affect groups like the Boys and Girls Club that is cutting programs to save costs, a small businessman who finds himself being priced out of competition or a caregiver who can’t afford gas to get to clients.

And for other Meals on Wheels programs around the bay, hikes in fuel costs have meant fewer deliveries. They can’t find volunteers who can afford to fill their tanks.

Prices at the pump are a pain for all of us, but Speaker Pelosi is accusing President Bush of policies that have driven up the prices, and says she has a solution to bring prices down immediately,

“Mr. President, do not fill the strategic petroleum reserve with oil at record highs. Instead, take out the oil that we brought at a lower price to bring down the price of oil, to reduce the price at the pump,” says Speaker Pelosi.

So, whose fault is it now? Obviously not Obama’s.

“Wall Street profiteering, not oil shortages, is the cause of the price spike,” Pelosi said in a statement. “Unfortunately, Republicans have chosen to protect the interests of Wall Street speculators and oil companies instead of the interests of working Americans by obstructing the agencies with the responsibility of enforcing consumer protection laws.”

Expect hearings on Capitol Hill any day now. The Democrats will do anything to distract you from Obama’s failed policies and will just blame “Big Oil” and now Wall Street. Good thing for them they have willing accomplices in the media to play along.

"Somehow we have to figure out how to boost the price of gasoline to the levels in Europe," Mr. Chu, who directs the Lawrence Berkeley National Laboratory in California, said in an interview with The Wall Street Journal in September.

Hey, at least Energy Secretary Stephen Chu gave an honest answer. When asked by Rep. Alan Nunnelee whether the Obama administration wants to work to get gas prices to come back down, Chu replied that they’re not focusing on that — and that higher gas prices mean more of a push for the alternative energy sources the administration wants to push:

“We agree there is great suffering when the price of gasoline increases in the United States, and so we are very concerned about this,” said Chu, speaking to the House Appropriations energy and water subcommittee. “As I have repeatedly said, in the Department of Energy, what we’re trying to do is diversify our energy supply for transportation so that we have cost-effective means.”

Chu specifically cited a reported breakthrough announced Monday by Envia Systems, which received funding from DOE’s ARPA-E, that could help slash the price of electric vehicle batteries.

He also touted natural gas as “great” and said DOE is researching how to reduce the cost of compressed natural gas tanks for vehicles.

High gasoline prices will make research into such alternatives more urgent, Chu said.

“But is the overall goal to get our price” of gasoline down, asked Nunnelee.

“No, the overall goal is to decrease our dependency on oil, to build and strengthen our economy,” Chu replied. “We think that if you consider all these energy policies, including energy efficiency, we think that we can go a long way to becoming less dependent on oil and [diversifying] our supply and we’ll help the American economy and the American consumers.”

The Heritage Foundation jumped all over Chu’s comments:

As shocking as his remarks are, they shouldn’t come as a surprise. Chu has a long record of advocating for higher gas prices. In 2008, he stated, “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe.” Last March, he reiterated his point in an interview with Fox News’ Chris Wallace, noting that his focus is to ease the pain felt by his energy policies by forcing automakers to make more fuel-efficient automobiles. “What I’m doing since I became Secretary of Energy has been quite clear. What I have been doing is developing methods to take the pain out of high gas prices.”

One of those methods is dumping taxpayer dollars into alternative energy projects like the Solyndra solar plant. Another is subsidizing the purchase of high-cost electric cars like the Chevy Volt to the tune of $7,500 per car (which the White House wants to increase to $10,000). In both cases, those methods aren’t working. Solyndra went bankrupt because its product couldn’t bear the weight of market pressures, and Chevy Volts aren’t selling, even with taxpayer-funded rebates. What’s the president’s next plan? Harvesting “a bunch of algae” as a replacement for oil.

Meanwhile, the Obama Administration is seemingly doing everything it can to make paying for energy even more painful by refusing to open access to the country’s oil and gas reserves and blocking new projects that would lead to the development of more energy in America. Case in point: the president’s decision to say “no” to the Keystone XL pipeline, a project that would have delivered hundreds of thousands of barrels of oil from Canada to Texas refineries, while bringing thousands of jobs along with it.

And while Chu gave an honest answer that actually matches the actions taken by this administration, Heritage notes that Obama has offered nothing but double-talk on gas prices:

Sensing impending political fallout from the high cost of gas, President Obama last week spoke on the subject and attempted to deflect blame for the pain. He said that there is no quick fix to high gas prices and the nation cannot drill its way out of the problem, but as Heritage’s Nicolas Loris writes, the president ignored reality and dished out a series of half-truths. Among them, the president claimed oil production is its highest in eight years, that increasing oil production takes too long, and that oil is not enough. Loris writes that while production is up on private lands, unrealized production on federal lands and offshore could have yielded even more output, increasing supply and driving down costs. If the president had said “yes” to Keystone, oil could have reach the market quickly. And as for the president’s push for alternative energy, those sources simply cannot stand the test of the market.

I don't know much about sun spots or climate change (that's why I stay off that thread) but Chu in the long run is not wrong IMHO.

Indirectly the price of oil is elastic. Raise the price and people will seek alternative ideas and/or cut back. In the long run, America is better off.

Further, we don't set the price of oil; the world market sets the price. That's why I get a big laugh out of domestic drilling supposedly lowering the price of oil; it won't, they will just ship it to the highest bidder.

Also, the price of gas is not only the price of oil. Taxes etc. all play a part.

Frankly, higher oil prices IMHO is not all bad.

"Fuel is a drug the U.S. has long since needed weaning off. Admittedly Americans have to cover greater distances than Europeans. But you don't need a glorified double bed powered by a throbbing great V8 to do that. A sensibly-sized car with a two-liter turbo will do the job just as comfortably."

"That's why I get a big laugh out of domestic drilling supposedly lowering the price of oil; it won't, they will just ship it to the highest bidder."

a) Transportation costs will tend towards our oil/gas staying here, but yes at some point we will make money by selling it elsewhere.b) Not subject to vagaries of Middle East or other foreign politicsc) Law of Supply and Demand: More supply=lower prices. Just like the law of gravity, the law of supply and demand is not up for negotiation.

"That's why I get a big laugh out of domestic drilling supposedly lowering the price of oil; it won't, they will just ship it to the highest bidder."

a) Transportation costs will tend towards our oil/gas staying here, but yes at some point we will make money by selling it elsewhere.b) Not subject to vagaries of Middle East or other foreign politicsc) Law of Supply and Demand: More supply=lower prices. Just like the law of gravity, the law of supply and demand is not up for negotiation.

a)Transportation costs in the overall scheme of things is not a deciding factor.b)Not being subject to the vagaries of the Middle East begs my point, prices will rise in case of turmoil and oil producers will sell to the highest bidder. Or do you suggestlegislation that they must sell to America first? As of now, much, most of our oil is sold internationally. I agree with the Law of Supply and Demand, but given the world's thirst for oil, our supply will not affect prices that much. Combine that with the response of other oil producing nations to keep prices stable, but high, I doubt if it will have much impact on world prices. Better to seek alternatives.

What's the martial art expression? Short term pain, long term gain....

Do you really need a giant Suburban? If the answer is yes, expect to pay.....

It is hard to imagine any time in history when such rampant pessimism about the economy has existed with so little evidence of serious trouble.

True, retail sales fell 0.4% in December and fourth-quarter real GDP probably grew at only a 1.5% annual rate. It is also true that in the past six months manufacturing production has been flat, new orders for durable goods have fallen at a 0.8% annual rate, and unemployment blipped up to 5%. Soft data for sure, but nowhere near the end of the world.

It is most likely that this recent weakness is a payback for previous strength. Real GDP surged at a 4.9% annual rate in the third quarter, while retail sales jumped 1.1% in November. A one-month drop in retail sales is not unusual. In each of the past five years, retail sales have reported at least three negative months. These declines are part of the normal volatility of the data, caused by wild swings in oil prices, seasonal adjustments, or weather. Over-reacting is a mistake.

A year ago, most economic data looked much worse than they do today. Industrial production fell 1.1% during the six months ending February 2007, while new orders for durable goods fell 3.9% at an annual rate during the six months ending in November 2006. Real GDP grew just 0.6% in the first quarter of 2007 and retail sales fell in January and again in April. But the economy came back and roared in the middle of the year -- real GDP expanded 4.4% at an annual rate between April and September.

With housing so weak, the recent softness in production and durable goods orders is understandable. But housing is now a small share of GDP (4.5%). And it has fallen so much already that it is highly unlikely to drive the economy into recession all by itself. Exports are 12% of the economy, and are growing at a 13.6% rate. The boom in exports is overwhelming the loss from housing.

Personal income is up 6.1% during the year ending in November, while small-business income accelerated in October and November, during the height of the credit crisis. In fact, after subtracting income taxes, rent, mortgages, car leases and loans, debt service on credit cards and property taxes, incomes rose 3.9% faster than inflation in the year through September. Commercial paper issuance is rising again, as are mortgage applications.

Some large companies outside of finance and home building are reporting lower profits, but the over-reaction to very spotty negative news is astounding. For example, Intel's earnings disappointed, creating a great deal of fear about technology. Lost in the pessimism is the fact that 20 out of 24 S&P 500 technology companies that have reported earnings so far have beaten Wall Street estimates.

Models based on recent monetary and tax policy suggest real GDP will grow at a 3% to 3.5% rate in 2008, while the probability of recession this year is 10%. This was true before recent rate cuts and stimulus packages. Now that the Fed has cut interest rates by 175 basis points, the odds of a huge surge in growth later in 2008 have grown. The biggest threat to the economy is still inflation, not recession.

Yet many believe that a recession has already begun because credit markets have seized up. This pessimistic view argues that losses from the subprime arena are the tip of the iceberg. An economic downturn, combined with a weakened financial system, will result in a perfect storm for the multi-trillion dollar derivatives market. It is feared that cascading problems with inter-connected counterparty risk, swaps and excessive leverage will cause the entire "house of cards," otherwise known as the U.S. financial system, to collapse. At a minimum, they fear credit will contract, causing a major economic slowdown.

For many, this catastrophic outlook brings back memories of the Great Depression, when bank failures begot more bank failures, money was scarce, credit was impossible to obtain, and economic problems spread like wildfire.

This outlook is both perplexing and worrisome. Perplexing, because it is hard to see how a campfire of a problem can spread to burn down the entire forest. What Federal Reserve Chairman Ben Bernanke recently estimated as a $100 billion loss on subprime loans would represent only 0.1% of the $100 trillion in combined assets of all U.S. households and U.S. non-farm, non-financial corporations. Even if losses ballooned to $300 billion, it would represent less than 0.3% of total U.S. assets.

Beneath every dollar of counterparty risk, and every swap, derivative, or leveraged loan, is a real economic asset. The only way credit troubles could spread to take down the entire system is if the economy completely fell apart. And that only happens when government policy goes wildly off track.

In the Great Depression, the Federal Reserve allowed the money supply to collapse by 25%, which caused a dangerous deflation. In turn, this deflation caused massive bank failures. The Smoot-Hawley Tariff Act of 1930, Herbert Hoover's tax hike passed in 1932, and then FDR's alphabet soup of new agencies, regulations and anticapitalist government activity provided the coup de grace. No wonder thousands of banks failed and unemployment ballooned to 20%.

But in the U.S. today, the Federal Reserve is extremely accommodative. Not only is the federal funds rate well below the trend in nominal GDP growth, but real interest rates are low and getting lower. In addition, gold prices have almost quadrupled during the past six years, while the consumer price index rose more than 4% last year.

These monetary conditions are not conducive to a collapse of credit markets and financial institutions. Any financial institution that goes under does so because of its own mistakes, not because money was too tight. Trade protectionism has not become a reality, and while tax hikes have been proposed, Congress has been unable to push one through.

Which brings up an interesting thought: If the U.S. financial system is really as fragile as many people say, why should we go to such lengths to save it? If a $100 billion, or even $300 billion, loss in the subprime loan world can cause the entire system to collapse, maybe we should be working hard to build a better system that is stronger and more reliable.

Pumping massive amounts of liquidity into the economy and pumping up government spending by giving money away through rebates may create more problems than it helps to solve. Kicking the can down the road is not a positive policy.

The irony is almost too much to take. Yesterday everyone was worried about excessive consumer spending, a lack of saving, exploding debt levels, and federal budget deficits. Today, our government is doing just about everything in its power to help consumers borrow more at low rates, while it is running up the budget deficit to get people to spend more. This is the tyranny of the urgent in an election year and it's the development that investors should really worry about. It reads just like the 1970s.

The good news is that the U.S. financial system is not as fragile as many pundits suggest. Nor is the economy showing anything other than normal signs of stress. Assuming a 1.5% annualized growth rate in the fourth quarter, real GDP will have grown by 2.8% in the year ending in December 2007 and 3.2% in the second half during the height of the so-called credit crunch. Initial unemployment claims, a very consistent canary in the coal mine for recessions, are nowhere near a level of concern.

Because all debt rests on a foundation of real economic activity, and the real economy is still resilient, the current red alert about a crashing house of cards looks like another false alarm. Warren Buffett, Wilbur Ross and Bank of America are buying, and there is still $1.1 trillion in corporate cash on the books. The bench of potential buyers on the sidelines is deep and strong. Dow 15,000 looks much more likely than Dow 10,000. Keep the faith and stay invested. It's a wonderful buying opportunity.

"That's why I get a big laugh out of domestic drilling supposedly lowering the price of oil; it won't, they will just ship it to the highest bidder."

a) Transportation costs will tend towards our oil/gas staying here, but yes at some point we will make money by selling it elsewhere.b) Not subject to vagaries of Middle East or other foreign politicsc) Law of Supply and Demand: More supply=lower prices. Just like the law of gravity, the law of supply and demand is not up for negotiation.

a)Transportation costs in the overall scheme of things is not a deciding factor.b)Not being subject to the vagaries of the Middle East begs my point, prices will rise in case of turmoil and oil producers will sell to the highest bidder. Or do you suggestlegislation that they must sell to America first? As of now, much, most of our oil is sold internationally. I agree with the Law of Supply and Demand, but given the world's thirst for oil, our supply will not affect prices that much. Combine that with the response of other oil producing nations to keep prices stable, but high, I doubt if it will have much impact on world prices. Better to seek alternatives.

What's the martial art expression? Short term pain, long term gain....

Do you really need a giant Suburban? If the answer is yes, expect to pay.....

So, vote for Obozo, he'll continue to raise gas prices? Sounds like a winner! You should suggest this to the DNC, JDN.

JDN: Random numbers to illustrate the point concerning the transpost costs variable: If the cost in the world is $100 and the cost of shipping from the US for a given country is $5 greater than some other source and the cost in the US is $98, then the US oil would cost the other country more than the market cost and will not be purchased by that country.

More importantly, the idea that the massive energy capabilities of the US would not have a significant effect on the marginal cost of oil on the world market seems to me rather , , , silly. Look at the efffect on oil prices when Libya, a mere million or two barrels a day, went off-line.

March 7 (Bloomberg) -- The near-failure by U.S. states to fund rising retiree health-care costs for millions of government workers threatens to produce budget crises similar to the one that pushed Stockton, California, to take a step toward bankruptcy last week.

States haven't financed almost 96 percent of the $627.4 billion they were projected to owe for future retiree benefits in 2010, according to Bloomberg Rankings data. The estimated deficit grew from about 95 percent in 2009 as governors coped with lower general-fund revenue and rising demand for services following the longest recession since the Great Depression.

As best as I can tell, the Fed's essentially zero-negative interest rate policies (after taking into account inflation and taxes on the interest rates) are a major player here by changing the actuarial assumptions upon which funding must be made.

If I understand correctly, "fully funded" is defined in part by the reasonably expected rate of return on what is put into the fund. Much of the current problem comes from assuming rates of return of something like 9% per annum, a number which arguably was supported by the actual rates of return during the 90s. Now with rates of return much lower, both in equity and in interest rate denominated vehicles (bonds, t-bills etc) actuarial assumptions now require larger amounts of money be deposited to properly prepare to meet future promises.

Weekend readers of the New York Times got an eyeful yesterday; the Grey Lady took a long look at New York state, and the result is an article that could almost have appeared in the Weekly Standard or the National Review. While the Times carefully avoided drawing any indelicate conclusions that might upset its liberal readership, the review of government finance at the state and local level reveals an appalling picture of blue model thinking at its worst. New York state and local politicians, egged on by public sector unions, have dug the state into such a deep hole that it will be hard to emerge.

And the unions — along with the pro-bankruptcy wing of the Democratic Party — want to keep digging.

The reality is that from Long Island to Buffalo, New York cities and counties face severe and growing fiscal woes. The chief drivers of the crisis: blue sweetheart programs that are out of control: state pensions, Medicaid, and retiree health costs.

Example: New York City’s annual out of pocket pension costs have ballooned from $1.5 billion a year ten years ago to $8 billion today. This is the cost of the lies New York politicians have told their sheep like constituents for many years, promising fat pensions to workers while refusing to raise taxes to put enough money away for when the bills come due. According to the eye popping numbers in the Times, 3 percent of New York city property tax revenues went to pay pension costs in 2001; 35 percent of those revenues will go to pensions by 2015.

Meanwhile, the ratings agencies have been downgrading the debt of New York cities and counties as if we were on the Mediterranean: last month alone Rockland County and the city of Utica got downgrades, with Long Beach and Yonkers getting hit last year. Suffolk and Nassau counties are having to borrow to pay their pension fund contributions for this year; worse is likely to come even as the general economy slowly improves.

Read the whole piece to see both how a whole state can go down the tubes, and how a newspaper can report facts while tip toeing carefully around any implications that might make its readers unhappy.

The root problem is that New York elected officials lost sight years ago of the need to run the state and its cities on a businesslike basis. They made “investments” in social policy and educational spending that manifestly did not pay off in terms of enhanced productivity or economic benefits. They made pension promises that they neglected to fund. New York as a state has been committed to the belief that a high regulation, high cost, big government approach to state and municipal management would pay off in the long run: yes, government in New York would cost more than in Texas or Alabama or other benighted hell holes, but New Yorkers would be better educated and more productive. New York’s infrastructure might be expensive, but it would facilitate business growth. New York’s public sector labor force might be expensive, but it would be competent and motivated so that it would deliver more. New York could make a high cost, high regulation governance model work: that was the big bet.

It has failed.

It’s time for the state to take a long hard look at itself. The investments haven’t paid off — at least not enough to justify the costs. The government model is breaking down; the system doesn’t generate enough revenue to cover its cost.

Hopefully an economic recovery will provide a little breathing space, but New York can’t afford to waste any respite it gets. The state is on the wrong road and the outlook is grim.

When blue policy goes wrong, blue pols and their chorus of captive intellectuals sing for bailouts. If the city is broke, the state must pay up. If the state is broke, the feds must pay up.

But the feds can’t — and won’t — pay up. The feds are tapped out, the state is a mess, and there will soon no alternative to deep policy change.

Scott has good insight and data. I would like to go back a little through his blog which I haven't read for a while. Like Wesbury, it seems to me that we are hearing positive words that describe a very lethargic non-recovery. I wrote this about housing too, but I'm not going to count any margin of error level 'growth' as any kind of rebound. Maybe we aren't currently headed into collapse, but we also aren't building up enough economic strength to survive the next, major, self-inflicted setback.

I think both Wesbury and Grannis would agree that the 'growth' they are reporting, from the lowest of all lows, is a fraction of what it ought to be and that our policies are desperately in need of change.

Reading several blog pages back from Scott Grannis, this chart of his shows graphically what I think of the current 'reecovery'. A real recovery would show sharp growth aimed back at the line formerly known as 'growth trend'. The gap under is becoming what in Japan they called the 'lost decade'. You don't have to lose a decade. Decline, slow gfrowth and no growth, these are policy choices.

Another graphical look from Scott Grannis. Employment is one of the best and most important indicators of how an economy is really doing. Take a look at the recent uptick in employment that Wesbury and others are seeing - in the context of the hole that we dug.

Keep in mind also the budget gap, separate post. Climbing out of this hole is not optional!

By ALAN S. BLINDER At some point, the spectacle America is now calling a presidential campaign will turn away from comedy and start focusing on things that really matter—such as the "fiscal cliff" our federal government is rapidly approaching.

The what? A cliff is something from which you don't want to fall. But as I'll explain shortly, a number of decisions to kick the budgetary can down the road have conspired to place a remarkably large fiscal contraction on the calendar for January 2013—unless Congress takes action to avoid it.

Well, that gives Congress plenty of time, right? Yes. But if you're like me, the phrase "unless Congress takes action" sends a chill down your spine—especially since the cliff came about because of Congress's past inability to agree.

Remember the political donnybrook we had last month over extending the Bush tax cuts, the two-point reduction in the payroll tax, and long-term unemployment benefits? That debate was an echo of the even bigger donnybrook our elected representatives had just two months earlier—and which they "solved" at the last moment by kicking the can two months down the road. And that one, you may recall, came about because they were unable to reach agreement on these matters in December 2010. At that time, President Obama and the Republicans kicked one can down the road 12 months (the payroll tax) and another 24 months (the Bush tax cuts).

The result of all this can kicking is that Congress must make all those decisions by January 2013—or defer them yet again. If the House and Senate don't act in time, a list of things will happen that are anathema either to Republicans or Democrats or both. The Bush tax cuts will expire. The temporary payroll tax cut will end. Unemployment benefits will be severely curtailed. And all on Jan. 1, 2013. Happy New Year!

Enlarge Image

CloseGetty Images .There's more. As part of the deal ending the acrimonious debate over raising the national debt ceiling last August, the president and Congress created the bipartisan Joint Select Committee on Deficit Reduction, commonly known as the "super committee." It was charged with finding ways to trim at least $1.5 trillion from projected deficits over 10 years. Mindful that the committee might not prove to be that super, Congress stipulated that formulaic spending cuts of $1.2 trillion would kick in automatically if the committee failed.

Sure enough, it failed. So those automatic cuts are headed our way starting Jan. 15, 2013. To make this would-be sword of Damocles more frightening, the formula Congress adopted aimed half the cuts straight at the Pentagon.

Now, you don't really believe the defense budget will be cut that much, do you? Probably the rest won't happen, either. But if it all did, the resulting fiscal contraction—consisting of both tax increases and spending cuts—would be in the neighborhood of 3.5% of gross domestic product, depending on exactly how you count certain items, all at once. That's a big fiscal hit, roughly as big as what a number of European countries are trying to do right now, though with limited success and with notable collateral damage to their economies. An abrupt fiscal contraction of 3.5% of GDP would be a disaster for the United States, highly likely to stifle the recovery.

At this point, you are probably thinking: Well, of course Congress will find ways to wriggle out of its self-imposed budgetary corset. I agree. But the invisible hand won't do it; someone needs to figure out how.

It is next to certain that nothing will be done about the fiscal cliff during the election season. In fact, some Republicans are now threatening to renege on the spending cap for fiscal year 2013 that they agreed to last summer. In the absence of progress between now and Election Day, Congress will have about eight weeks left—including Sundays, Thanksgiving, Christmas and New Year's Eve—to either (a) find a solution to the long-running fiscal battle or (b) kick the can down the road again.

Bet on (b). Also bet that the agreement will come just before the bubbly flows on New Year's Eve. An outcome like that is far more likely than falling off the fiscal cliff. But my point is that finding a clever way to kick the can down the road again is becoming a bigger and bigger challenge. And Congress has barely coped with previous such challenges.

Fast forward to December 2012. The lame duck Congress will have on its plate all the issues it had to deal with in the December 2010, August 2011, December 2011, and February 2012 budget battles, plus the automatic cuts mandated by the failure of the super committee, plus the legacy of whatever claims and promises are made during the campaign. We may also be bumping up against the national debt ceiling again. And who will have to sort it all out? A Congress whose days are numbered and whose complexion may have been altered dramatically by the election.

The current betting odds say that President Obama will be re-elected in November, with Republicans controlling both the House and the Senate. Does anyone think a mix like that will be less contentious than the one we have now? And does anyone think that Republicans, seeing control of both houses of Congress on the horizon, will be more compromising in the lame duck than they have been in the recent past?

In sum, while we probably will not fall off the fiscal cliff in January 2013, there are ample opportunities for stumbles and slips between now and then. So wouldn't it be nice if the two parties engaged on this issue prior to Election Day?

Mr. Blinder, a professor of economics and public affairs at Princeton University, is a former vice chairman of the Federal Reserve.

Scott G. and I are emailing back and forth a bit this morning. With his permission, here are his comments on the Blinder piece:

"I have a dim view of Blinder. He is less partisan and somewhat more objective than Krugman, but is still more of a partisan hack than a serious economist. He's also a Keynesian who never met a spending-fueled budget deficit he didn't like. I actually look forward to more gridlock in Washington. Already it has helped spending decline from 25% to 23% GDP. Less spending means a stronger economy in my book. Bring on the "austerity!" "

This is important, was it economic freedom running wild or was it botched government programs and regulations that caused the financial collapse? Forbes contributor Charles Kadlec answers the political spin of our Treasury Secretary.

Last Friday, Treasury Secretary Timothy Geithner charged in a Wall Street Journal op-ed (http://online.wsj.com/article/SB10001424052970203986604577253272042239982.html) that those who oppose the Obama Administration’s regulatory regime for the financial services industry “seem to be suffering from amnesia about how close America came to complete financial collapse under the outdated regulatory system we had before Wall Street reform.” Au contraire, Secretary Geithner, it is you who choose to ignore and misrepresent the lessons of the financial crisis by perpetuating the myth that the source of the crisis was a lack of regulation.

First, your essay glosses over the central role the federal government played in creating the crisis. In particular, the government through Fannie Mae and Freddie Mac directed $5.2 trillion (that is trillion with a “t”) of capital to increase the supply of mortgages. In addition, it passed a law that required banks to make billions of dollars in loans to individuals that were unlikely to pay off the loans, in the end with 0% down.

In 1998, Fannie Mae announced it would purchase mortgages with only 3% down. And, in 2001, it offered a program that required no down payment at all. Between 2001 and 2004, subprime mortgages grew from $160 billion to $540 billion. And between 2005 and 2007, Fannie Mae’s acquisition of mortgages with less than 10% down almost tripled. These loans are now known as “subprime” and “alt A” loans. At the time they were made, Fannie Mae and Freddie Mac encouraged their issuance by lowering their standards and buying them up from the now vilified mortgage brokers, S&Ls, banks and Wall Street investment banks.

This activity was not due to a lack of regulation or oversight as you claim. Both companies are under the direct supervision of a federal regulator and Congress. At the time these loans were being purchased by these two Government Sponsored Enterprises, their actions were defended by many in Congress who, led by Senator Chris Dodd and Congressman Barney Frank, saw such reckless lending as a successful government initiative.

At the same time, the easy money policies of the Federal Open Market Committee, of which you were a voting member, were feeding an asset bubble in residential real estate, providing what proved to be an irresistible lure not only for speculators, but also for American families trying desperately to buy a house before inflation robbed them of their chance for home ownership.

Yes, mortgage brokers and banks encouraged reckless borrowing, though many who borrowed, with a little honest reflection, could have known that they would be unable to meet the financial obligation of paying the mortgage that they were using to buy a house that they could not afford. Nor does any of this excuse the poor judgment of those on Wall Street who levered their firms’ balance sheets so that even a 4% loss on their investments would leave them either bankrupt or in need of a bailout.

But, the culpability of those in the private sector should not be used to cover up or excuse the irresponsible behavior of those in the federal government. The self-regulatory check normally provided by markets on activities that are likely to lose money — lenders backing away — was simply blocked by the government’s intervention in the capital markets. As you must know, six top executives of Fannie Mae and Freddie Mac have been charged by the Securities and Exchange Commission with securities fraud for hiding the size of the purchases of low quality mortgages from the market.

In addition, the normal check on excessive leverage provided by unwilling lenders was overwhelmed by the perception, now validated, that Fannie Mae and Freddie Mac debt were backed by the full faith and credit of the federal government. This created a willing buyer backed by the federal government with unlimited access to credit markets and a trillion dollar budget. No wonder S&Ls and Wall Street found ways to satisfy the demand. Blaming a lack of regulation for the subsequent losses is political spin meant to cover up the greed and corruption on Pennsylvania Avenue that led to the crisis.

Second, your claim that increased regulatory oversight would have prevented the crisis requires a credulous belief in the wisdom and courage of those in power. Regulators with all of the necessary powers have failed in their most basic task of preventing fraud including Bernie Maddoff’s Ponzi scheme, and now the still unexplained disappearance of $1.6 billion of customer money at MF Global. Yet, you ask us to believe tens of thousands of pages of new regulations will somehow empower you and other elite public servants to prevent another financial crisis?

As we know now, you and the other members of the Federal Open Market Committee in 2006 did not grasp the implications of the then faltering housing market for the general economy or the health of the banking system. As a consequence, you and your colleagues did not use the powers you had to head off the financial crisis when there was still plenty of time to act. As former Prime Minister Tony Blair writes in his memoir, A Journey of My Political Life, an important contributor to the financial crisis was a failure “of understanding. We didn’t spot it…it wasn’t that we were powerless to prevent it even if we had seen it coming; it wasn’t a failure of regulation in the sense that we lacked the power to intervene. Had regulators said to the leaders that a huge crisis was about to break, we wouldn’t have said: There’s nothing we can do about it until we get more regulation through. We would have acted. But they didn’t say that.”

Third, the new regulatory regime for the financial industry created by the Dodd-Frank bill — ironically named after two of the perpetrators of the financial crisis — omits any reform of Fannie Mae and Freddie Mac. Yet, unlike the commercial and investment banks who have repaid the government bailout money, these two state sponsored financial giants have cost taxpayers more than $140 billion and are seeking billions more in bailout funds. At the same time, HUD is moving forward on issuing new rules that would support racial quotas for bank mortgages, which no doubt will again force banks to make loans to individuals who cannot afford them.

In light of this evidence and your own experience, your promise that a new, expansive regulatory regime reduces the risk of financial crisis is not credible. The regulatory maze created by Dodd-Frank not only robs the private sector of real resources that otherwise would be committed to allocating capital to credit worthy borrowers, it also undermines market skepticism essential to preventing systemic risk. In addition, it puts even more power in the hands of a few individuals who, like you, are fallible, rather than dispersing power among market participants.

You conclude your essay by writing: “We cannot afford to forget the lessons of the crisis and the damage it caused to millions of Americans. Amnesia is what causes financial crises.”

With all due respect Mr. Secretary, federal government policies, not amnesia, were at the heart of the financial crisis. The arrogance of power revealed by your selective memory and political spin, and the expansive regulatory regime you support are now the primary source of systemic risk to the U.S. financial system and the economic security of the American people.

HOW’S THAT HOPEY-CHANGEY STUFF WORKIN’ OUT FOR YA?“I was in Australia earlier this month and there, as elsewhere on my recent travels, the consensus among the politicians I met (at least in private) was that Washington lacked the will for meaningful course correction, and that, therefore, the trick was to ensure that, when the behemoth goes over the cliff, you’re not dragged down with it. It is faintly surreal to be sitting in paneled offices lined by formal portraits listening to eminent persons who assume the collapse of the dominant global power is a fait accompli. . . . Greece’s total debt is a few rinky-dink billions, a rounding error in the average Obama budget. Only America is spending trillions. The 2011 budget deficit, for example, is about the size of the entire Russian economy. By 2010, the Obama administration was issuing about a hundred billion dollars of treasury bonds every month — or, to put it another way, Washington is dependent on the bond markets being willing to absorb an increase of U.S. debt equivalent to the GDP of Canada or India — every year. And those numbers don’t take into account the huge levels of personal debt run up by Americans. College-debt alone is over a trillion dollars, or the equivalent of the entire South Korean economy — tied up just in one small boutique niche market of debt which barely exists in most other developed nations.”

No organization can survive corruption and ineptitude at the top forever. And we’ve had the worse political class in American history for a while now, though its rottenness has really accelerated lately.

UPDATE: A longtime reader emails:

I’m a Canadian, and you might be interested to know that the Harper government are working very hard (in the background) along the same lines as the Aussies. They are doing everything possible to diversify Canada’s export markets away from the US as fast as possible, for example the pipeline to move Alberta and Saskatchewan oil to world markets via the sea, not to the US. Ditto aeroplanes, rail cars, fibre-optic electronics, robotics, lumber, and a wide range of other products.

The quiet back-room planning is driven by the alarming extent to which the Obama administration has already deeply damaged the US economy (compared to Canada) with its policies, actions, and insane deficits. The Harper government are now moving to shut down US environmentalist activity in Canada — “We’re not going to be your National Park.” says the PM — and are already developping scenarios for maximum-possible disconnect from the States in the event Obama and his crew are returned to power in the coming elections. [no name please if published ... in spite of my present location I continue to follow Canadian politics very closely and have children living there. If it weren't for Canada's lack of truly free speech, draconian gun laws, and miserable health system, I'd be moving back.]

Interest rates will only go up if the economy does better. Meanwhile, look at Japan where their debt burden and their deficit are both much bigger than ours relative to GDP and yet interest rates are even lower than ours

If the economy strengthens then the tax base expands and tax revenues go up. Meanwhile the average maturity of federal debt is very short. The yield curve is positively sloped so that means that higher interest rates are already factored in to some degree, so higher rates are not a death sentence by any stretch. Moreover, a stronger economy would likely happen if policies improved, so even as interest rates rose the deficit could shrink as a percent of GDP.

The way out of the current predicament is growth. The election this year has a good chance to deliver that.

Interest rates will only go up if the economy does better. Meanwhile, look at Japan where their debt burden and their deficit are both much bigger than ours relative to GDP and yet interest rates are even lower than ours

If the economy strengthens then the tax base expands and tax revenues go up. Meanwhile the average maturity of federal debt is very short. The yield curve is positively sloped so that means that higher interest rates are already factored in to some degree, so higher rates are not a death sentence by any stretch. Moreover, a stronger economy would likely happen if policies improved, so even as interest rates rose the deficit could shrink as a percent of GDP.

The way out of the current predicament is growth. The election this year has a good chance to deliver that.

"Interest rates will only go up if the economy does better. Meanwhile, look at Japan where their debt burden and their deficit are both much bigger than ours relative to GDP and yet interest rates are even lower than ours."

Scott is right on this, but it is unfortunate to need to look at stagnation elsewhere for guidance.

3 things come to mind (and more) that will keep economy from seriously entering a period of robust, uninhibited growth:

a) Interest rates as GM and Scott say. Interest rates will go up when some economic activity gets going again, but that will further hurt the cost of buying homes, automobiles, business expansion etc. We have seen this cycle before.

b) Energy costs will go up. The price increases proved the inelasticity of oil demand, consumption was down only 3% while prices at the pump skyrocketed. But in fact and in light of the barriers still in place to new production, gas prices are artificially low compared to what they would be if 6 or 10 million more people were soon commuting to work and a hundred million or more were better able to afford weekend and vacation travel. Just as likely as a new lease from the administration offshore is a crackdown on fracking or closure of coal or nuclear etc.

c) We still have unindexed, progressive tax brackets with more tax rate increases coming. The more that nominal incomes go up either through economic growth or inflation, the larger of a share that is taken and the greater the disincentive is to either produce or report that additional income.

d) Over-regulation and botched and convoluted regulation. Nothing in the Stimulus 1, 2, 3 or QE to the nth power plans address that. Even a Supreme Court decision striking down all of Obamacare only gets us back to where we were before implosion.

We build into our economy all these man-made forces that ensure the better things go, the worse things will get.

Scott G makes clear the importance to the economy of changing political course. Many economists do not come out and say that, and there are many economists of course who hold a different or opposite political policy view. (Romer and Krugman say government spending stimulus is still too small.) I don't see how anyone can project the future direction of our economy without knowing the policy outcomes this election, house, senate and Presidential, will bring. Will we have national healthcare? Will have 20% across the board tax rate cuts? We will the rate increases plus the Buffet surcharge plus a near doubling of capital gains rates? Will we have corporate rates cut to around the OECD average or the highest in the world? Will interest rates be near zero or double digit? Will we have gas at the pump - or algae?

Like the uncertainty of investing in a third world country, nobody knows.

What is at least partly driving Al Sharpton’s call for civil disobedience if the city of Sanford doesn’t arrest George Zimmerman for the death of Trayvon Martin? What is at the heart of Keith Olbermann’s dispute with Al Gore? Why are Rosie O’donnell and Oprah Winfrey no longer best friends? What has made the Huffington Post bloggers sue Arianna Huffington?

A subject as old as the ages; a matter discussed in the Bible which has gone by many names down through time. A matter so solid some have called it the foundation of society — even a memorial to dead presidents on which their likenesses are emblazoned. Found in large quantities it is called grand. The central pole of the Big Tent is made of it. Yes, we’re talking about money. The chief problem with money, as Walter Russell Mead observes, is that the Blue Model is running out of it. Once upon a time the money was just out there. The dollars were mooing and lowing like the buffalo on the Great Plains. The only problem was divvying it up. But now that it’s getting harder to come by, a whole host of professions based on the dollar hunting and skinning business is becoming endangered. Mead describes the situation in his vivid prose:

The dream machines of the blue social engineers don’t sail serenely across the azure sky anymore. Think of the various carbon exchanges and environmental planetary schemes; think of high speed rail proposals like California’s $100 billion train to bankruptcy; think of Obamacare. These days the experts, “social entrepreneurs” and smart young blue twenty somethings fresh out of the Ivy League whomp up social programs with as much verve and dedication as their New Deal and Great Society predecessors, but the new Dreamliners don’t take off. At most they roll around the runway, emitting clouds of noxious smoke; wings fall off, windows pop out, turbines misfire and the tires go flat.

The Big Tent is the house that jack built. And jack has left town.

So don’t be surprised if the the Big Tent is sagging at the edges. The marketing department has been particularly hard-hit. Al Gore’s Current network was paying Keith Olbermann $50 million to attract viewers they hoped to have. Olbermann was supposed to be its primary liberal voice. But the New York Times explained that Olberman wasn’t attracting anybody, even though he acted like he was:

In his 40 weeks on Current TV, he had an average of 177,000 viewers at 8 p.m., down from the roughly one million that he had each night on MSNBC. Just 57,000 of those viewers on any given night were between the ages of 25 and 54, the coveted advertising demographic for cable news.

Talking Points Memo quoted a source which said “Olbermann failed to show up for work without authorization, missing almost half of his working days in the months of January and February. Olbermann asked for a vacation day on March 5, the night before Super Tuesday, according to the source. He was told it would be a breach if he took the vacation, which Olbermann did.” For his part, Olbermann said he would sue Gore. In the end, perhaps, they both needed and deserved each other.

Olbermann was a reprise of the recent fall of Rosie O’Donnell. Early this March the “Oprah Winfrey Network issued a press release announcing The Rosie Show had been canceled, following six months of humiliating ratings. … What went wrong? Multiple insiders interviewed for this story say that both Ro and O are to blame; the network never fit O’Donnell, and O’Donnell wasn’t able to make the splash she was supposed to.”

Becoming a “liberal voice” was once where the money was. The jack. A lot guys still believed that. And boy were they wrong. Arianna Huffington won the right in court not to pay her bloggers a dime from the money she received from AOL for the sale of the Huffington Post. “U.S. District Judge John Koeltl rejected claims by social activist and commentator Jonathan Tasini and an estimated 9,000 other bloggers that they deserved $105 million, or about one-third, of the purchase price.”

It was, as one Columbia Law professor put it, signing up to engage in “the electronic equivalent of someone writing a letter to the editor.” It is no longer so easy to hitch one’s wagon to the liberal star.

But if these individuals were facing a loss of income, Al Sharpton, by contrast, was trying to climb out of a deep financial hole. “The left-wing National Action Network Inc., headquartered in New York City’s Harlem neighborhood, owes at least $1,556,059 in federal taxes and $108,489 in New York taxes, according to the Nexis tax liens database. Tax agencies typically file tax liens only after taxes have become significantly overdue and other collection methods have failed.”

After Trayvon Martin was killed, the Chicago Tribune found the Reverend raising money for Trayvon’s cause. At a rally he shouted:

“I’m going to start off with $2,500,” Sharpton said, holding up a check. “Who’s next?”

Then Sharpton announced that television personality Judge Greg Mathis donated $10,000.

Several elected Florida officials were present, and each took a turn addressing the crowd before Sharpton was scheduled to speak. U.S. Rep. Corrine Brown was one of the first to address the crowd Thursday night. She rallied the crowd by yelling, “I want an arrest, I want a trial.”

The she asked the crowd: “What do you want?”

And the crowd responded, “We want an arrest!”

Doubtless Sharpton really wants an arrest. But given the parlous state of his finances, it would be understandable if he didn’t mind making a few bucks on the side as well. All across the board the Blue Model is experiencing what parliamentary systems call the loss of “supply.” Supply is a term used to describe money bills, either taxation and government spending, which is the lifeblood of politics.

Karl Rove notes that even President Obama is feeling the pinch. He is raising far less money than he did during his first campaign and is having to work much harder for it.

Last July, President Obama’s campaign announced that it had raised an average of $29 million in each of the previous three months for itself and the Democratic National Committee (DNC). I was only mildly impressed. After all, that was well below the $50 million a month needed to reach the campaign’s goal of a $1 billion war chest for the 2012 race.

Seven months later, I’m even less impressed. Through January, the president has raised an average of $24 million a month for his campaign and the DNC. Next week, the Obama campaign will release its February numbers, but the president is on track to be hundreds of millions of dollars shy of his original goal.

It’s not for lack of trying. Mr. Obama has already attended 103 fund-raisers, roughly one every three days since he kicked off his campaign last April (twice his predecessor’s pace).

The Obama administration fears a Supreme Court finding that its health care law is unconstitutional above all because it is one of the dwindling number of places from which it can source the megabucks needed to feed its army of public sector and activist constituencies. Without Obamacare to fall back on as a milking cow, things could really get tough.

Just how bad things have become was illustrated by the floor defeat of Obama’s budget 414-0. It received not a single vote. “Republicans wrote an amendment that contained Mr. Obama’s budget and offered it on the floor, daring Democrats to back the plan, which calls for major tax increases and yet still adds trillions of dollars to the deficit over the next decade. … But no Democrats accepted the challenge.”

The Achilles’ heel of the Big Tent — and Big Government — is its penchant to spend money faster than it can raise taxes or borrow. Its very bulk works against it. Told that mighty German cruisers were loose in the South Atlantic during the Great War, First Lord of the Admiralty Winston Churchill declared that they were doomed in any case. Without fuel and sustenance, they could not survive — “a cut flower in a vase, fair to see yet bound to die.” He might have been talking about Hope and Change.

The Blue Model has had a good run. But it needs to reform itself. If even celebrities like Keith Olbermann and Al Sharpton are feeling the pinch, how are the Occupy Wall Street dupes going to fare? And who else is going to have to tighten his belt in the house that jack built?

Harper: Thanks to Obama’s “no” on Keystone, the price of Canadian crude will go up for the U.S.

posted at 2:50 pm on April 3, 2012 by Tina Korbe

The damage is done. Even if President Barack Obama decides to approve the Keystone XL pipeline at some point in the future, he already sent a message to Canada that our northern neighbor can’t rely on us as its only energy customer — and Canadian prime minister Stephen Harper heeded it.

In an interview with former U.S. Rep. Jane Harman (D-Calif.) in D.C. yesterday, Harper explained that Canada will now seek to expand its export market to Asia and will also cease to supply oil to the United States at a discounted rate.

“Look, the very fact that a ‘no’ could even be said underscores to our country that we must diversify our energy export markets,” Harper told Harman in front of a live audience of businesspeople, scholars, diplomats, and journalists. …

Harper also told Harman that Canada has been selling its oil to the United States at a discounted price.

So not only will America be able to buy less Canadian oil even if Keystone is eventually approved, the U.S. will also have to pay more for it because the market for oilsands crude will be more competitive.

“We have taken a significant price hit by virtue of the fact that we are a captive supplier and that just does not make sense in terms of the broader interests of the Canadian economy,” Harper said. “We’re still going to be a major supplier of the United States. It will be a long time, if ever, before the United States isn’t our number one export market, but for us the United States cannot be our only export market.

“That is not in our interest, either commercially or in terms of pricing.”

“We cannot be, as a country, in a situation where our one and, in many cases, only energy partner could say no to our energy products. We just cannot be in that position.”

Harper’s comments came the same day that Barack Obama’s Super PAC, Priorities USA, released an ad that sought to tie Mitt Romney to Big Oil. The ad was itself a response to an ad underwritten by the American Energy Alliance that attacked Obama on his energy record and warned that this administration would be content to see gas prices rise as high as $9 a gallon.

This fallout from the president’s decision on Keystone XL underscores the truth that Obama does not make policy decisions in a vacuum. He’ll do what he will — and other countries will respond accordingly. Our famously “cerebral” leader might have preferred to have had more time to “sufficiently review” the project, but he didn’t. In the time frame he was given, he made his priorities perfectly clear: He cares more to retain the support of certain constituencies than to approve a project that would have created thousands of jobs and signaled to Canada that we’re committed to ensure a supply of affordable energy for ourselves. The American Energy Alliance had it right: The president’s energy policies have done nothing to secure America’s energy future. We’ll be ever more at the mercy of the oil-producing countries the president likes to blame so much.

(Reuters) - Egan-Jones Ratings downgraded the credit level of the United States as Washington has struggled to reduce the federal debt burden, which is projected to surpass the size of the country's economy.

The independent rating firm, which issued the downgrade late Thursday, said its senior debt rating on the United States is now AA, its third highest rating, down one notch from AA-plus.

It also maintained a negative watch on the world's biggest economy as the federal debt load could rise to $16.7 trillion at the end of 2012. U.S. gross domestic product, in the meantime, could grow to $15.7 trillion, assuming it would grow at a rate of 2.5 percent, the firm said.

The firm downgraded the United States for second time in less than nine months "because of the lack of any tangible progress on addressing the problems and the continued rise in debt to GDP," said Sean Egan, co-founder of firm, in an e-mail statement.

Egan-Jones's downgrade did not elicit major market responses. U.S. government debt prices jumped on Friday after news of much weaker-than-expected job growth in March renewed bets the U.S. central bank would embark on more bond purchases to foster economic growth.

Back in mid-July, Egan-Jones stripped the United States' of its top AAA-rating amid the debt ceiling fight in Washington that stoked fears of a federal default.

The three larger rating agencies, however, currently have higher ratings on the United States than Egan-Jones.

Moody's Investors Service and Fitch Ratings still rate the United States with their highest credit grade of AAA, although Moody's has said it could strip the country of its top rating.

In August Standard & Poor's stripped the United States of its AAA rating, knocking it by a notch to AA-plus. It warned of a possible further downgrade.

Efforts to contain federal spending and borrowing have been unsuccessful. A congressional "Super Committee" seeking spending cuts of $1.5 trillion over 10 years, equal to $150 billion annually, "was a failure," Egan-Jones said in its report.

"Obviously, the current course is not enhancing credit quality. Without some structural changes soon, restoring credit quality will become increasingly difficult," it said.

While the rock-bottom interest-rate climate, a result of the Federal Reserve's ultra-loose policies, has helped the United States to finance its federal debt, it could run into trouble once its borrowing costs rise and the government does not reduce its debt load, Egan said.

The Fed has clung to a near-zero interest rate policy since December 2008. It has also purchased more than $1 trillion worth of Treasuries securities over the past three years, stemming from its emergency measures to lower mortgage rates and other long-term borrowing costs to stimulate borrowing and investment.

"Monetizing the debt depresses interest rates in the short run but does not address underlying credit quality as manifested by the rapid rise in debt to GDP," Egan said.

"If Cowen’s case is right, the U.S. is not a nation in decline. We may be in the early days of an export boom that will eventually power an economic revival, including a manufacturing revivial. But, as Cohen emphasizes, this does not mean that nirvana is at hand."

Bigdog, Thanks for that post. I am not much of a Brooks fan but his reporting here is very good.

At the high end of the economy, if you invent, innovate or simply out-hustle the competition today you now have a much larger global market in which to sell your product or service than you had a generation ago. The income that come come from even a very low margin successful global business is nearly limitless. That is a good thing and should not be used as a distraction for what the rest of us may need to do to survive and prosper. There is NOT a fixed size pie that we are splitting up. Wealth creation is just that, new wealth, and it improves potential of everyone around them for new income. An app developer may be able to sell a million off of one home-run. That it doesn't seem fair to someone else is not a productive thought. Still, a plumber can only replace only one tub faucet at a time though the products, methods and tools he uses may have improved. A professor of constitutional law still needs an hour (plus prep time) to deliver a first class lecture. Not every profession benefits from the change of scale though we all can benefit from living in a healthier economy.

One fear is that a few big businesses will take over everything, but everyone who has worked for one of the giants knows that they turn down and pass up plenty of opportunities everyday leaving behind a plethora of new opportunities for new entrepreneurs in their wake.

The question no one but me it seems is asking is why is life getting so expensive? Everything it seems now costs way more than it should. It take so much money to just get by.

Something like 40 cents of every dollar of resources goes to public sector overhead. I don't know what that burden ought to be but for my money I would say quite a bit lower. Worse I think is the regulatory burden mostly hidden from view but perhaps one of every family's biggest expenses. Again, I can't say what that burden ought to be, we certainly need one, but it needs to be a whole lot lower.

The 3rd economy unmentioned is the large number of people who live outside of our productive economy, not in the economy one or economy two. In many areas, that is the majority.

Back to the first tier, it is quite a tragedy for the rest of the globe that America at the moment with its public sector brakes on is failing to lead in a forward direction.